Innovation is one of those words that gets repeated so often that it seems to mean everything and nothing all at once. Of course, in the scope of human history, from the first handmade tools all the way to the Internet, creating species-altering technology has helped us not only survive, but flourish. Yet, in the age of digital entrepreneurship, it’s easy to lose yourself in this mythical degree of innovation, as if every new product or service is measured by whether or not it changes the world forever.
Sometimes, a little technological tweak is all your company needs to make in order to rake in a fortune. Other times, you really should swing for the fences. The question is how well your senior leadership guides the company toward the innovations necessary to remain relevant in the marketplace, or even to create new markets.
That’s why we’ve decided to offer our Implementing Innovation series, where, in Part I, we’ll outline how to create an innovation strategy for your business, then, in future installments, we’ll discuss ways to track the success of your strategy.
Four Types of Innovation
Gary P. Pisano, Harry E. Figgie Professor of Business Administration at the Harvard Business School, says that, while a company typically has no problem defining how each of its departments will contribute to the company’s overall business strategy, there’s so often a disconnect between that very same businesses strategy and the company’s R&D. Pisano insists that, in order to align innovation with long-term vision, a company must outline its innovation strategy according to four criteria:
- Routine innovation — “builds on a company’s existing technological competences and fits with its existing business model—and hence its customer base.”
- Example: Apple upgrades its OS; Intel releases an even more powerful microprocessor.
- Disruptive innovation — “requires a new business model but not necessarily a technological breakthrough. For that reason, it also challenges, or disrupts, the business models of other companies.”
- Example: Android’s operating system is disruptive because it challenges Apple and Microsoft in that Android’s operating system is given away for free.
- Radical innovation — “is the polar opposite of disruptive innovation. The challenge here is purely technological.”
- Example: The emergence of genetic engineering and biotechnology as a form of drug discovery enabled pharmaceutical companies to leverage their existing business models in a brand new way.
- Architectural innovation — “combines technological and business model disruptions.”
- Example: Kodak and Polaroid had to master completely new technologies in order to transition to digital photography. Profits could no longer rely on disposables like film, paper, processing chemicals, and services.
Allocating Resources for Each Type of Innovation
The next step, Pisano asserts, is to decide the proportion of resources to allocate to each of the four types of innovation. Though there is no simple formula for this, a company must base its decisions on:
- rate of technological change
- magnitude of the technological opportunity
- intensity of competition
- rate of growth in core markets
- degree to which customer needs are being met
- the company’s strengths”
For example, Google’s routine innovations in advertising are driving a lot of growth, yet the company is at the same time exploring driverless cars.
While historic companies like Google and Apple don’t represent the average company’s innovation capabilities, Pisano explains that they, like everyone else, still must navigate the universal problem of trade-offs—how to achieve a balance between types of innovation in such a way that the amount of success outweighs the number of missed opportunities. Pisano suggests framing this decision-making in two different approaches:
Demand-pull approach — “finding customers’ highly challenging problems and then figuring out how the company’s cutting-edge technologies can solve them”
Supply-push approach — “developing technology then finding or creating a market”
Via the demand-pull approach, a company can let the market speak for itself through crowdsourcing or co-creation. With crowdsourcing, the more people involved in the process, the greater the probability a viable solution will be found. But testing can be too costly and time-consuming for some companies, depending on their existing business model. With co-creation, the customer is put front-and-center through close collaboration, getting unique insights directly from the horse’s mouth. But this approach can also limit outside-the-box thinking, thus hampering the chances of discovering disruptive innovation.
For the supply-push approach, Pisano invokes Steve Jobs: Sometimes the customers don’t know what they want. And if a company has the resources to take these gambles, it’s all high-risk/high-reward from here on out. But the high-risk here is that this new tech might never find a market.
In the end, senior leadership must decide where the company’s current strengths lie, then allocate resources accordingly. In Part II of our Implementing Innovation series, we’ll discuss
how a company can track the success of its innovation strategy via concrete metrics.
No Matter What—Keep Evolving
At tekMountain, one of the nation’s emerging innovation and entrepreneurial centers, we’ve helped businesses of all sizes and stages—from startup to Fortune 500—align their business strategies with their innovation strategies. And one major takeaway we’ve learned in all of our dealings is this: Even your innovation strategy needs to be innovated from time to time. Sometimes, the most rebel-minded company is prone to becoming a one-trick pony. Through our vast mentorship network, we connect businesses with the insights they need to revitalize their mission.
Contact tekMountain today to learn how your business can revolutionize its innovation strategy.